Small-capitalization stock.

Shares of relatively small publicly traded corporations with a total market capitalization of less than $2.3 billion are typically considered small-capitalization, or small-cap, stocks.

That number is not used uniformly, however, and you may find small-cap defined as below $1.5 billion. Market capitalization is calculated by multiplying the market price per share by the number of outstanding shares.

Small-cap stocks, which are tracked by the Russell 2000 Index, tend to be issued by young, potentially fast-growing companies. Over the long term -- though not in every period -- small-cap stocks as a group have produced stronger returns than any other investment category. Mutual funds that invest in this type of stock are known as small-cap funds.

Domestic demand and earnings, which are insulated from the global macroeconomic forces, are helping small cap stocks to do well, according to Alan Richardson, who is in charge of overseeing about USD82bn for Samsung Asset management.

On the other hand, the very high profile and active individual investors should continue to remain cautious, meaning that the small cap stocks in general are likely to underperform for the time being, especially as they tend to underperform larger cap stocks with the onset of recession.

In one of TWST's insightful off-the-record pieces, TWST talks in confidence to leading analysts at brokerage firms about their views of top management in the medical technology: small cap stocks industry, and asks which of those CEOs are doing the best job in maximizing value for their shareholders.

THINK SMALL: After doing poorly for most of 1998, small cap stocks (that is, companies with market capitalization of less than $500 million) are all the rage again in investment circles and among financial pundits.

Mellon Equity Associates, a subsidiary of Mellon Financial Corporation , has developed a market cap size-rotation model that forecasts small cap stocks will continue to outperform the overall equities market.

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